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Front Page » Top Stories » Speculation About Us Impact Rises As Euro Day Approaches

Speculation About Us Impact Rises As Euro Day Approaches

Written by on December 13, 2001

By Paola Iuspa
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With the euro less than a month away from becoming the uniform currency for 12 countries, some experts predict a gradual strengthening of the bank note that could wield a double-edged sword on the US economy.

Up to this point, the euro has been used only for government and institutional transactions.

While Florida’s exporters and tourism officials would love to see a weaker dollar and stronger euro to make US products and services more affordable to Europeans, it could cause turmoil in the economy, said economist Tony Villamil, CEO & president of The Washington Economics Group. Any reaction could be strongest felt in areas such as Miami where there is a high amount of international trade.

"The dollar is the safe-heaven currency in the world," said Mr. Villamil, who also chairs the Governor’s Council of Economic Advisors and is a director for Enterprise Florida, the state’s principal economic development organization. "Now the marketplace is the US. There is a tendency to gravitate toward the dollar.

"A weaker dollar would hurt US pricing, inflation performance and foreign investment."

Countries adopting the euro are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. While those nations started using the euro as an accounting currency in banking and government transactions in 1999, people continued handling individual national currencies for everyday shopping.

Although there is no proof the euro will strengthen, many observers speculate that once citizens in the 12 Western European countries start using it and prices are marked to coincide with the new currency, confidence in the notes will grow.

If that happens, they say, so would its value. Amid fluctuations, a euro is now worth about US 90 cents. At this exchange rate, tourism and US products are relatively costly to Europeans while Europe remains more of a bargain for Americans.

The stronger the dollar gets, the more expensive US merchandise and services become for European Union nations, said David Konfino, president of Union Planters International Bank and the Florida International Bankers Association.

Maria Masvidal-Visser, president and CEO of Euro Am, offering corporation relocation services and real estate, said the euro’s worth has gone up and down since it was introduced. With the dollar at a higher exchange rate, she said the US is expensive for Europeans and as a result their business presence in the US has slightly declined in the past two years.

"Commodities prices have came down, too, affecting also the strength of the euro," she said. "What happens worldwide affects the Europeans’ volume of investment and trade."

Holger Ziegeler, deputy consul general of the German consulate in Miami, said the currency unification will benefit tourists traveling in the euro zone.

"It will make it easier for Americans visiting Europe and doing country-hopping," he said. "They will be able to use the same currency anywhere they go. They will save money."

"I can see some positives about US companies selling to or buying from countries in the European Union," Mr. Konfino said. "They won’t need to work with a multitude of currencies. It will make it easier for exporters and importers."

With a population of 303 million, the euro zone is larger than the US market, which has about 276 million consumers, and larger than Japan, with 127 million inhabitants, Mr. Ziegeler said.

The euro area contributes 16% of global gross domestic product, the US 22% and Japan 7%, according to German Embassy’s website. Because of its market size, the euro becomes the second-most important trading currency, according to the website, offering a credible alternative to the US dollar.

Joaquin Roy, professor of the University of Miami’s School of International Studies and co-director of the European Union Center co-hosted by UM and Florida International University, said the complete monetary integration would benefit both economies.

He said a common currency would make investment transactions easier by "eliminating a lot of headaches" that result from converting prices from one currency to another.

"Now people will be able to plan trips and investments without having to think of the paperwork associated with currency conversions," Dr. Roy said. "Calculations need time and time is money."

Having a single monetary unit could probably boost the euro, making it a little bit less volatile and more stable, said Victor Alvarez, an attorney who practices international law with White & Case.

Mr. Ziegeler said the currency’s success would lie in its ability to bring economic stability to the Union because it would allow companies to do long-term planning in the pricing of goods.

"The euro will speed up Europe’s recovery," he said. "It will also help the US, which has major investments in Europe – Chevrolet, General Motors, Ford, AT&T and IBM."

Mr. Villamil said the amount of money in circulation would not by itself strengthen the euro against the dollar. It is the fundamentals of the union’s economy such as production growth, inflation performance and conduct of monetary policy that would affect the strengthening of the currency, he said.

"There are questions about the future performance of the euro, which would determine its value," said Mr. Villamil, who recently served as director of the Office of Tourism, Trade & Economic Development of Florida in the governor’s office.

With Germany and France entering a recession, the union still has to weather an economic slowdown looming on the horizon, he said. There is more international confidence in the US Federal Reserve Board, Mr. Villamil said, than in the European Central Bank, which is relatively new.

Besides, he said, the union’s monetary policy system is affected by the economic condition of each member. The US monetary system is only affected by the board’s chairman, a post now held by Alan Greenspan. Top Front Page About Miami Today Put Your Message in Miami Today Contact Miami Today © Copyright 2001 Miami Today designed and produced by Green Dot Advertising and Marketing Solutions